Under attack by the incumbent operators such as Bharti Airtel and Vodafone, which allege that its latest regulation on predatory pricing and significant market power favours only one operator —Reliance Jio, the Telecom Regulatory Authority of India (Trai) seems to be looking at ways to reconcile the interests of the two groups, but the task seems difficult. In a clear hint that the regulation is not aimed at crippling the incumbents from taking proactive steps to bring innovative tariffs, Trai chairman RS Sharma told FE that if an incumbent operator with significant market power (SMP) comes out with a tariff which is below its average variable cost (AVC) but convinces the regulator that it is not with an aim to kill competition but only to increase sales, it can go ahead with it. “Even a significant market power can give offers which are below its average variable cost, provided the intention is not to kill competition,” Sharma said.
However, analysts questioned that since no operator openly says its tariffs are aimed at killing competition, how would Trai determine what is the intent of a tariff scheme. It would only end up in a lot of subjective interpretation leading to even more litigation, they say. However, Sharma tried to dispel such apprehensions stating that the regulator will bring out a checklist to determine the intent of tariffs and curb the element of subjectivity. As is known, Bharti group chairman Sunil Bharti Mittal and Vodafone group CEO Vittorio Colao have criticised the Trai’s regulation and said they were left with no option but to challenge it in a court of law. This is because under this regulation while Reliance Jio can come out with any kind of tariffs since it does not have a market share of 30% in any circle, operators such as Bharti and Vodafone, which have 30% market share in several circles, can at best match them in self-defence but can’t initiate a tariff reduction on their own. This is like fighting with your hands tied, the two telecom chiefs have said.
Defining predatory pricing for the first time last month, Trai, in fresh amendments to the Telecom Tariff Order (TTO), said a tariff will be considered predatory if in a relevant market (circle), an operator who is an SMP offers services at a price that is below its AVC with a view to reduce competition or eliminate competitors in that relevant market. It explained that an operator will be considered SMP if it controls 30% market share which will be calculated on the basis of gross revenue and subscriber market share. It also defined AVC as the cost that is calculated by identifying those expenses, which change with output, adding them and then dividing the result with total number of units produced.
Elaborating on his interpretation of the tariff order, Sharma told FE that intention is very important, which will be determined by a number of factors. “Please look into the explanatory mechanism in the TTO. It says that in any event, the authority will separately issue self-check guidelines/procedure for the convenience of telecom service providers on the basis of the parameters already set out in the present amendments,” he said. The TDSAT, in its order on February 1, had directed Trai to issue suitable direction/ order/ regulation regarding benchmark/guideline that can be applied for ascertaining consistency with the principle of non-predation.
When asked when would these guidelines be in place, the Trai chairman said, “We are bringing as soon as possible. We are working on them.” On the regulator ruling out traffic volume and switching capacity from determining SMP, Sharma said switching capacity is relevant in IUC agreements. Similarly, traffic is different with different operators and there is no accepted conversion mechanism which can aggregate these into a single comparable entity, he added.